Well it’s another beat and beat with revenues growing triple digits (102.6%) on an FX neutral basis yet again…
MercadoLibre (NASDAQ:MELI): Q2 GAAP EPS of $1.37 beats by $1.25.
Revenue of $1.7B (+93.5% Y/Y) beats by $220M.
Total Payment Volume, up 72% year-over-year on an FX neutral basis $7.0 billion
Gross Merchandise Volume, up 46% year-over-year on an FX neutral basis
Shares +7%.
Active users grow 47%
GMV grew 46% on FX neutral basis
On and off platform TPV up 72% and 93.5% in FX neutral terms
Asset management product, Mercado Fondo, has over $810 million under management and approximately 19.3 million users across Latin America.
Mercado Credito’s portfolio is now over $ 800 million, almost 5x its size compared to the second quarter of 2020.
Well it’s another beat and beat with revenues growing triple digits (102.6%) on an FX neutral basis yet again… – Ant
This may seem to be a quibble, but I think it’s important.
Most of us (investors) live in a single country, not moving around a lot. I happen to live in the US. For me, the value of my portfolio… and the results of any company… are significant only to the extent that the performance is exemplary in US dollars. (For other folks, performance needs to look great in YOUR currency). Why? Because all my valuation (overall wealth) and my spending is in US dollars.
For those who don’t follow MELI, the above seemingly trivial point leads to “So what?”
The “So what?” here is that FX neutral reporting doesn’t pay the bills. US dollars pay the bills. AND (getting to the point), the MELI gains are relevant to me only in US dollars.
This all boils down to what is known as foreign exchange risk.
For MELI, that “FX neutral” gain of 102% is 94% in USD. Still great, but a more accurate number for those interested in value created for those spending USD.
Side note: Theoreticians may point out that such disparities will eventually even out. Maybe so. But in my 50+ years of investing… the numbers have only shifted one way with respect to South America. “Maybe” it’ll even out a century from now, but I doubt many folks here have that sort of investing horizon. And in the meantime, there is the opportunity cost of being on the wrong side of that disparity.
Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
Rob - I understand your point of view but IF YOU invest overseas with your US dollars you are affected by the FX rate - both on the way out and on the way back. Secondly Mercadolibre operates across 10+ countries and has its HQ based in Argentina - to understand the underlying strength of the business in a volatile currency landscape it makes sense to look at it on neutral basis.
So yes looking at bottom line earnings and what you get back in USD is an important figure but looking at YoY change comparisons of the underlying business is important and an FX neutral basis helps you understand the true performance of the underlying business rather than just what currency movements have done during the period.
Of course if you really don’t like the risk then don’t invest in overseas companies but if you do and you want to understand the underlying performance then its worth understanding the genuine drivers of the business and separating if out from the currency markets movements.
After all I could just sit here and calculate my actual returns in SGD based on the SGD/USD exchange rate as I don’t live in a USD nation but I don’t think you guys would be interested me posting my portfolio performance and share holding performance according to SGD exchange values.
Of course if you really don’t like the risk then don’t invest in overseas companies but if you do and you want to understand the underlying performance then its worth understanding the genuine drivers of the business and separating if out from the currency markets movements. - Ant
As an FYI, MELI is about 7% of my portfolio (plus another 17% in a Singapore based company, FWIW). “Liking” it is not the point. I am merely recognizing that investing overseas can involve direct effects on the value of your investing beyond how many widgets were sold for X amount on an FX neutral basis. As we all can (or should) agree, we pay for our living expenses with our local currency in most cases.
And (perhaps shocker?) I don’t deny FX neutral has the usefulness you mention. I’m just saying that folks should not ignore how their company is doing FOR THEM (ie, local currency… USD in my case).
As for you calculating your results based on SGD, that would be desirable… for you… from my point of view. And, of course, you recognize that it wouldn’t mean much to 99% of the viewing public here and that’s a contributing factor why you included portions of MELI’s press release.
Final observation: Note that many international companies (including MELI) try to hedge currency variations… often… it seems… to negative effect because doing so is HARD to do successfully. That’s just another factor for why evaluating in our “home town” currency is of value.
In any case, my initial post was commentary on a detail… USD results are slightly lower than this “FX neutral” number. The difference should be no difference in this case as to whether the company is a worthwhile investment (it is!), although folks on this board can certainly decide it may not be one that fits their objectives. After all, capital requirements are high, margins are low and highly variable… but 100% annual growth tends to make those negatives a bit more bearable.
Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
Thank you for this discussion. I have been long MELI for 2-3 years, and I have been aware that MELI operates in a different currency. But this discussion gives me some context for understanding of the risk/reward in this type of situation. Cheers.
Ant,
Thanks for the post. The market is taking the report well too. I people start to appreciate the great business and great runway to look forward to.
I was reminiscing and reviewing my MELI purchase ledger, and here’s how it looks:
Pur Date Gain (%)
04/19/17 734
05/05/17 598
06/27/18 514
10/29/19 243
05/06/20 141
It’s not CRWD or maybe not even UPST (boy I love their last report), but it’s certainly worth a spot in many people’s growth portfolios.
And in the meantime, there is the opportunity cost of being on the wrong side of that disparity.